LONDON, Jan 17 (Reuters) - Steelmakers could focus their acquisition sights on raw materials in 2008, in a bid to reduce costs which are set to climb on the back of higher iron ore prices, a senior industry expert told Reuters this week.

The steel industry is bracing for a sixth straight year of iron ore price hikes in 2008 as annual contract talks between the mills and top iron ore producers Vale, BHP Billiton and Rio Tinto have begun.

The expectations in the market point to a 30 percent rise in the price of iron ore, a key raw material used to make steel, while industry sources in Australia have said Vale has offered an increase of 70 percent over current term prices.

"Those steel companies that are not self-sufficient in raw materials will be seeking out raw materials-related companies," said Robert Miller, Senior Managing Director of leading investment bank Miller Mathis, which advises the steel industry.

"There are a handful of major steel companies that are at or near self-sufficiency of raw materials but there are many that are still dependent on world markets," Miller said.

"I know of several major steel companies that are pursuing raw material acquisitions instead of focusing on buying primary producers," Miller said.

The world's sixth largest steel maker Tata Steel said it was looking for iron assets in the West Africa.

Arcelor Mittal, the world's biggest steel maker, has said it is aiming to lift its self-sufficiency in iron ore to 90 percent by 2018 from 47 percent today.

CHINA'S LIABILITY

In this picture, China, the world's top producer and consumer of steel, is among the countries which needs those raw materials the most. Miller agrees.

"If I were in China I would certainly be looking at raw materials acquisitions because China's big liability in steel is they have limited raw materials," he said.

This need could prompt China to get involved in the possible takeover of Rio Tinto by the world's largest miner BHP Billiton, which could create a $350 billion plus mining giant.

"I personally think China should enter into the Rio Tinto transaction," Miller said, "because Rio represents about 30 percent of China's annual iron ore needs. This is a once in a lifetime opportunity for China to acquire such a huge amount of iron ore."

Miller believes China will soon join the rest of the world in permitting market-based transactions in steel.

"It would be quicker, easier and more cost efficient for China to achieve world-class capability in steelmaking by allowing foreign steel companies to partner with domestic steelmakers," he said.

Miller does not foresee any steel company taking drastic measures due to recession fears but thinks rising production costs could eventually curb enthusiasm for acquisitions.

"There may come a point where steel companies cannot pass on these cost increases anymore, and then it begins to hurt profitability. If that happens stock prices will go down and companies will not be thinking as optimistically about acquisitions."

Independent invest bank Miller Mathis has advised on $46 billion worth of steel M&A business in 2006 and $5.7 billion on 2007.

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